Three insurance agents have been accused by the FBI of allegedly orchestrating a $100 million life insurance scheme involving stranger-originated life insurance policies, according to the bureau's New York field office.
Michael Binday, the president and owner of an unnamed Scarsdale, N.Y., insurance company, and independent agents James K. Kergil and Mark Resnick have been charged with various counts of wire and mail fraud, and various obstruction of justice charges. Binday turned himself in to authorities last week, while the two other men were arrested.
The men allegedly earned millions in commissions during the course of the scheme and even bought STOLI policies for themselves, the FBI said.
"The defendants conspired to reap the benefits of a scheme that defrauded insurance companies and lined their own pockets," Janice K. Fedarcyk, an FBI assistant director in charge, said in a written statement. "But the insurers were not the only victims. Inevitably, insurance fraud results in higher costs to consumers."
According to the FBI, the trio, between 2006 and 2011, allegedly defrauded four insurance companies by using straw buyers to purchase more than $100 million in life insurance policies, when the true owners of the policies were third-party investors and financiers. The insurance companies allegedly defrauded are American General Life Cos., Lincoln Financial Group, Security Mutual Insurance Co. and Union Central Life Insurance, according to the indictment.
The men allegedly recruited elderly people of modest means as straw buyers to purchase the policies, promising payments if their policies were resold. The applications for policies, which were submitted by Binday, typically contained misrepresentations regarding the straw buyers' net worth, assets and their intent to resell the policies.
Policy premiums were paid by third-party financiers, who would wire money into the straw buyers' bank accounts. The system was allegedly brokered by the three men in an attempt to fleece the insurance companies into thinking the straw buyers were paying for the policies on their own. The policies were also resold on the secondary market.
During a July 2010 federal grand jury investigation into the case, Kergil and Resnick allegedly conspired to destroy documents and electronic files. Binday allegedly arranged for their clients to provide authorities with false information.
STOLI transactions have emerged as an issue in recent years. In 2008, the life settlement industry was hit with a wave of lawsuits filed by life insurers, alleging the life settlement industry was participating in STOLI transactions. And as a result, dozens of states have enacted anti-STOLI laws to prevent such transactions (Best's News Service, Aug. 8, 2011).
American Council of Life Insurers has previously said STOLI policies typically start by hedge funds and other investors inducing seniors to buy life insurance solely to transfer the death benefits to the investors, who hope to profit when the seniors die (Best's News Service, Oct. 23, 2008). The transaction has no purpose but instead is "a get-rich-quick scheme" for hedge funds, the group said.
Resnick's lawyer, JaneAnne Murray, said her client has pleaded not guilty and "looks forward to clearing his good name in a court of law." Neither Binday nor Kergil had lawyers listed in their court records.
(By Michael Buck, senior associate editor, BestWeek: [email protected])